Barclays to price currency-linked notes; Home Depot the reference stock of two reverse convertibles

By Sheri Kasprzak

New York, Sept. 5 - An offering of currency-linked notes from Barclays Bank plc continues to demonstrate a viewpoint of weakness in the U.S. dollar, market insiders said Wednesday.

"I'm sure there are contrarians out there who really do think the dollar is improving," said one market source. "For the most part, investors believe the dollar is still weak."

When asked how the market source came to this conclusion, he said most of the notes of this type have taken the view that the dollar will decline against the foreign currencies.

Earlier this week, Wachovia Capital Markets announced plans to negotiate 100% principal-protected notes linked to a basket of currencies for Eksportfinans ASA.

The 18-month notes are linked to the Brazilian real, the Mexican peso, the Turkish lira, the Hungarian forint, the Indonesian rupiah and the Indian rupee.

Last week, Barclays priced $5 million in 95% principal-protected notes linked to the Chinese yuan, the rupee, the Thai baht and the Korean won and announced plans to price fully principal-protected notes linked to the yuan, rupee, rupiah, Japanese yen and Malaysian ringgit.

Barclays' notes

The latest Barclays notes are linked to the real, the rupee, the Icelandic krone, the Turkish lira and the forint, all against the U.S. dollar.

The two-year notes will pay a 10% coupon if the basket performance is greater than or equal to zero on Sept. 25, 2008.

At maturity, if the basket performance is positive against the dollar, investors will receive the greater of the basket return or 110% of par. If the basket return is negative, investors will receive par.

Exchange rates

The exchange rate on the real was 1.9678 to the dollar on Wednesday, compared with 1.8985 on Aug. 6.

The rupee's exchange rate Wednesday was 45.3 to the dollar. On Aug. 6, the rupee's exchange rate was 40.25.

On Wednesday, the Icelandic krone exchange rate was 61.15 to the dollar.

The Turkish lira ended at 1.3405 to the dollar on Wednesday compared with 1.2793.

The forint's exchange rate on Wednesday was 190.54 to the dollar. The exchange rate was 182.48 a month ago.

Other notes

The 100% principal-protected notes announced Tuesday by Wachovia have an 18-month term and pay par plus the basket performance amount.

Assuming the average currency appreciation is greater than zero and less than or equal to the minimum average currency appreciation of 9.5%, the basket performance amount will equal the product of the principal amount and the minimum average currency appreciation.

If the average currency appreciation is greater than the minimum average currency appreciation, the basket performance equals the sum of the minimum supplemental payment amount and an amount equal to the product of the principal amount and four times the excess of the average currency appreciation over the minimum currency appreciation.

If the average currency appreciation is less than or equal to zero, the basket performance will equal $0.00.

Home Depot a popular reference stock

In other news, Barclays priced $5 million in 10% reverse convertible notes linked to Home Depot, Inc. and the home improvement retailer was also linked to a proposed offering of 9% knock-in reverse exchangeables from ABN Amro Bank NV.

The Barclays notes have a one-year term and pay par at maturity unless the stock falls below the 70% protection level during the life of the notes and end below the initial share price of $34.02.

Assuming that happens, the investors receive a number of shares equal to $1,000 divided by the initial share price.

The reverse exchangeables from ABN Amro have a 9% coupon and pay par at maturity unless the stock falls below the 80% knock-in level during the life of the notes and ends below the initial share price.

The six-month notes are set to price Sept. 24.

In August, the stock traded between $32.82 on Aug. 16 and $38.31 on Aug. 31. On Wednesday, the stock closed up 15 cents to close at $36.51 (NYSE: HD).

Last week, Home Depot dropped the asking price on its HD Supply arm to $8.5 billion from $10.33 billion.

Bain Capital Partners, the Carlyle Group and Clayton, Dubilier & Rice plan to buy the distribution business.

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